How FICO Credit Scores Are Calculated

Because we live in a computer-driven world, it should come as no surprise that your creditworthiness comes down to one number. Credit reporting agencies use your history of paying loans to compile a FICO score.

Each of the three credit reporting agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary from one agency to another, the differences aren't huge; each agency uses the following factors to calculate your score:

• Your Credit History - Have you had credit for many years, or for a short time?
• Payment History - Have you paid more than 30 days late?
• Your Credit Card Balances - How many accounts do you have, and how much do you owe on them?
• Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

Each of these is assigned a value and a weight. Each formula produces a single number which varies slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher is better. Most folks getting a mortgage have a score above 620.

Your FICO score affects your monthly payment

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I raise my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the score is built on your lifetime credit history, so you can't turn it around right away. You must appeal for the credit agency to remove any incorrect data on your credit report, which is the only way to quickly improve your credit score.

Getting your FICO score

Before you can improve your score, you must know your score and ensure that the credit reports from each agency are correct. Fair Isaac, the company that offered the original FICO credit score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. Also available are helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once per year from the three major agencies at AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Give us a call at 2037296681.